Explain why comparing the GDPs of various nations might not tell you which nations are better off.

Explain why comparing the GDPs of various nations might not tell you which nations are better off.

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July 4, 2021
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Explain why comparing the GDPs of various nations might not tell you which nations are better off.

Answer and ExplanationSolution by a verified expert

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Per capita GDP is calculated by dividing the total GDP of the country with the total population of the country.

Explanation
GDP is the money value of all final goods and services produced by the enterprises located within the domestic territory of the country. Since GDP is measured by a country's currency, it is necessary to convert each country's currency to a common denominator before comparing them. In such a way comparing a nation's well being with other nations in terms of GDP becomes a complex measure.

Furthermore, GDP does not calculate the population size of the country. It may be true that a country whose GDP is higher may not enjoy higher well being compared to a country whose GDP is lower. This can happen if the population size of the economy with higher GDP is very high so that the per capita GDP is low for that country. At the same time, the country with lower GDP may have a low population such that the per capita GDP is high for that economy.

All these arguments show that comparing the GDPs of various nations might not be a good indicator of the well being of an economy.

Verified Answer
Comparing GDPs of various nations might not indicate which nations are better off because the calculation of GDP is very complex and cumbersome. The calculation of GDP indicates sheer enormity of the task. Because of the variable patterns of calculating GDP for different nations, gross domestic product is necessarily a less than perfect measure of a nation's economic well being. GDP does not calculate the population size of the economy while measuring the well being of the nation. To calculate GDP across various nations, the current of the different nations has to be converted to a common denominator. All these show that comparing GDP across various nations might not be a true indicator of the wellbeing of the nation.

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